Trust accounting (self assessment) - same as UK interest?

Disjoint

Hi all - long story short, wife gave birth, lost her job and now looking at ways to save money. This includes, unfortunately for us, letting go of her accountant.

In 2016-17 part of her income was in the 40% bracket. She received GBP 8k from a trust and taxes were paid at the trust level (20% tax).
I called the HMRC helpline and they told me to treat trust income similar to UK bank interest - this results in having to pay another 20% on the GBP 8k at the self assessment level to bring the total taxes paid on the 8k to 40%. This makes sense, but I just wanted to double check I am not overpaying and the two can be treated more or less the same.

(The trust has one property in it that pays out monthly rent to my wife and her sibling)

Thank you in advance!

xylophone

https://www.gov.uk/trusts-taxes/beneficiaries-paying-and-reclaiming-tax-on-trusts

xylophone

https://www.jameshay.co.uk/OldCMS/DocumentView.aspx?DocumentID=2900

may be worth a look.

MoneySavingUser

Disjoint wrote: »

Hi all - long story short, wife gave birth, lost her job and now looking at ways to save money. This includes, unfortunately for us, letting go of her accountant.

In 2016-17 part of her income was in the 40% bracket. She received GBP 8k from a trust and taxes were paid at the trust level (20% tax).
I called the HMRC helpline and they told me to treat trust income similar to UK bank interest - this results in having to pay another 20% on the GBP 8k at the self assessment level to bring the total taxes paid on the 8k to 40%. This makes sense, but I just wanted to double check I am not overpaying and the two can be treated more or less the same.

(The trust has one property in it that pays out monthly rent to my wife and her sibling)

Thank you in advance!

Is the trust an income in possession trust or a discretionary trust?

I am going to guess it is an income in possession trust as 20% has been deducted (45% would be deducted for a discretionary trust).

You can confirm the type of trust by asking the trustees or looking at the trust deed.

You could also look at last year's tax return to see how the accountant treated it then.

The trustees should have given you an R185 tax voucher showing what type of income it is. If it is rental income then it cannot be treated as interest income!

Disjoint

MoneySavingUser wrote: »

Is the trust an income in possession trust or a discretionary trust?

I am going to guess it is an income in possession trust as 20% has been deducted (45% would be deducted for a discretionary trust).

You can confirm the type of trust by asking the trustees or looking at the trust deed.

You could also look at last year's tax return to see how the accountant treated it then.

The trustees should have given you an R185 tax voucher showing what type of income it is. If it is rental income then it cannot be treated as interest income!

Thank you both for your answers. You are absolutely right - it is a non-discretionary trust (I should have mentioned it). I was also a bit surprised from the advice I received from HMRC on this (albeit the people dishing the advice over the phone are not CPAs).

It is definitely not interest income (it is rental income), but for tax purposes won't the result be the same? As in, HMRC will get the right amount in the end which is probably why they told me to do it this way? Similar to my bank giving 20% to HMRC from the interest they give me, and once I do my self assessment I give them the remaining 20% due to the higher tax bracket I am in.